Laurie Wener, MD of Pam Golding Properties (PGP) in the Western Cape, says perhaps now more than ever, consumers from all walks of life – whether aspiring or existing home owners – are avidly interested in the residential property market, and they are faced with a considerable amount of information imparted in the media, on the internet or via advertising.
“The residential property market is perennially of great interest to the public at large, and statistics and trends which are gathered from various reliable sources – mainly the Deeds Offices – are sliced and diced by a variety of commentators to project a picture of market activity,” says Wener.
”But information may prove to be confusing and even misleading.
“For instance, it is frequently reported that the ‘average price in an area has risen by X% over the last quarter’. This could imply that the actual property prices have had capital growth of X%, or that the market activity may have moved into a higher price band – while property prices may in fact have remained level or even decreased, as can occur when mortgages become difficult to obtain,” says Wener.
Another example is a statement such as: ‘the incidence of cash buyers has increased by XX% over the last quarter’. This could mean that out of a specific number of buyers, the proportion of those purchasing for cash has increased, or that the total number of buyers has reduced, possibly due to a reduction in mortgage dependent buyers, with cash buyers therefore making up a larger component than before.
“Statistics published often cover a very broad price range of properties, resulting in averages being calculated from vastly varying values across price bands. Coupled with this, and at any given time, different price bands may be influenced by variable market factors. As a result, this may mean that they are not realistically reflective of the segment of the market to which the reader relates or has an interest in,” says Wener.
“A representative of a statistical bureau who was recently being interviewed on a TV channel said that property prices had risen by 12%, and in the next sentence reported that cash buyers were buying ‘properties of distressed sellers on auction at 45% lower than current market value’.”
“This begs some questions:
- Does the 12% growth figure include the properties which were sold “on auction for 45% below market value”? If so, then it suggests that capital growth in the general market may, theoretically, be considerably higher.
- If the properties ‘discounted’ on auction were omitted, then this suggests that the 12% growth figure is inflated as not all sales in the market were included.
- Surely prices achieved – whether individually or collectively and regardless of the method of sale – establish market value? Therefore, to say that there has been growth of 12% when properties are being sold at 45% below market value is a contradiction in terms and misleading to the consumer.”
Wener says the same interview revealed that it is a statistical fact that the number of Estate Agency Affairs Board (EAAB) registered agents has dropped from approximately 85,000 to 25,000 over the past two years, and that the average sales turnover has increased from approximately R2m to R4m per agent.
“This was attributed by the interviewee to being the result of fewer agents sharing the pie.
“However, consideration has to be given to the following facts. Firstly, the pie has also shrunk considerably. Secondly, and independently of market conditions, it is a statistical fact that 20% of the agents achieve 80% of the turnover and possibly, or probably, it is this portion that has survived the trading conditions and constitutes the higher performers anyway.
Jacques du Toit, property strategist at Absa, says in order to understand information about price growth, a good grasp of the factors that drive it is necessary. “Many factors can influence price growth. These factors relate to the property market and the household sector, which may include demand and supply conditions, initially driven by economic growth, inflation, interest rates, employment, household income, debt, the affordability of housing, etc.”
He says the average price of houses in certain segments is calculated by dividing the total value of properties sold in a specific period in a specific segment by the number of those properties. “The overall average of middle-segment housing as defined by Absa – small, medium and large – is calculated by using the samples of each segment. It is thus a weighted average that is calculated.” – Eugene Brink
Readers' Comments Have a comment about this article? Email us now.
I would like to comment on the following statement of Mr Laurie Wener of Pam Golding Properties in the Western Cape: “Surely prices achieved – whether individually or collectively and regardless of the method of sale – establish market value? …”
This comment was reflected in the article “INTERPRET PROPERTY INFO THE RIGHT WAY” in Property 24 dated 2 August 2010.
My experience as a registered Property Valuer in South Africa led me to believe that properties that achieve prices of 45% under market value can hardly establish market value.
The definition of Market Value is as follows:
“ The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm`s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”
It would be dangerous to disregard the method of sale to establish Market Value. The question at an auction should be asked. Was the seller acting willingly, without compulsion and was it an arm`s length transaction. If it was not then the price achieved on that auction should not establish Market Value, because it did not comply to all the criteria within the definition. I agree definitions will allways be a matter of interpretation. I will allways be hesitant to consider an auction sale as an comparable sale to establish Market Value. – Okkie van Greunen
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